SK Innovation's Operating Profit Slashed to One-Third Due to Falling Oil Prices and Refining Margins (Update)

Oil Business Operating Profit Decreases by 1.9126 Trillion Won Compared to Previous Quarter
Lubricants Achieve Highest Quarterly Operating Profit Since Establishment
Battery Records Highest Quarterly Sales of 2.1942 Trillion Won

[Asia Economy Reporter Oh Hyung-gil] SK Innovation's operating profit in the third quarter fell to one-third of the previous quarter due to the decline in international oil prices and refining margins. However, the lubricants business achieved its highest quarterly operating profit, and the battery business also improved profitability.

SK Innovation announced on the 3rd that it achieved sales of KRW 22.7534 trillion and operating profit of KRW 703.9 billion in the third quarter.

Compared to the same period last year, sales increased by KRW 10.285 trillion and operating profit by KRW 35.2 billion. Compared to the previous quarter, sales increased by KRW 2.8481 trillion, but operating profit decreased sharply by KRW 1.6253 trillion.

The company explained, "Operating profit sharply decreased compared to the previous quarter due to the decline in oil prices and refining margins amid concerns over a global economic recession. Sales increased compared to the previous quarter thanks to the higher CDU operation rate in the petroleum business and improved production capacity of new battery plants. We expect refining margins to gradually recover due to global geopolitical changes such as the Russia-Ukraine war and increased heating oil demand entering the winter season."

Additionally, operating loss of KRW 400.4 billion occurred due to increased foreign exchange losses from the widening exchange rate and increased interest expenses from higher borrowings, resulting in a pre-tax profit of KRW 303.5 billion.

Net borrowings rose by KRW 5.43 trillion compared to the end of last year to KRW 13.8429 trillion, influenced by facility investments for battery business expansion.

By business segment, the petroleum business recorded an operating profit of KRW 316.5 billion, down KRW 1.9126 trillion from the previous quarter due to falling oil prices and refining margins caused by tightened policies in various countries and China's announcement of large export quotas. However, the trading division minimized profit decline by increasing sales of high-margin products leveraging volatile market conditions and expanding profits in the marine fuel market by utilizing the economic efficiency of low-cost oil blending.

The chemical business posted an operating profit of KRW 108.3 billion, up KRW 32.3 billion from the previous quarter. Despite inventory-related losses from naphtha price declines, the operating profit increased due to margin improvements from steady paraxylene (PX) spreads and exchange rate gains.

The lubricants business achieved an operating profit of KRW 336 billion, up KRW 80.8 billion from the previous quarter, marking the highest quarterly performance. The spread improved as a tight global supply-demand balance maintained firm selling prices.

The petroleum development business recorded an operating profit of KRW 160.5 billion, down KRW 5.7 billion from the previous quarter due to decreased sales volume despite reduced cost of sales.

The battery business achieved sales of KRW 2.1942 trillion, up KRW 906.2 billion from the previous quarter, driven by increased sales volume from stabilization of new plants in the US and Europe and passing on raw material price increases through sales price adjustments. Profitability greatly improved through negotiations on price adjustments for raw material cost increases, resulting in an operating loss of KRW 134.6 billion.

The company expects sales growth to continue in 2023, including the fourth quarter, supported by increased production capacity of new plants such as the US Plant 2 and two buildings of the Yancheng plant in China, and profitability to keep improving through price adjustment negotiations.

The materials business recorded an operating loss of KRW 27 billion due to decreased sales from changes in product mix and increased one-time costs, despite sales volume similar to the previous quarter.

Kim Yang-seop, SK Innovation's Chief Financial Officer, said, "Even in a highly volatile market environment, we will strive to generate stable profits through operational optimization such as expanding operation of advanced facilities. We will also accelerate investments in green businesses to achieve our new vision, 'All-Time Net Zero.'"

This content was produced with the assistance of AI translation services.